(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

Global Stocks Jump After Greeks Vote Themselves Into Even More Austerity

And so the 2015 season of the Greek drama is coming to a close following last night’s vote in Greek parliament to vote the country into even more austerity than was the case before Syriza was voted into power with promises of removing all austerity, even with Europe – which formally admits Greece is unsustainable in its current debt configuration – now terminally split on how to proceed, with Germany’s finmin still calling for a “temporary Grexit”, the IMF demanding massive debt haircuts, while the rest of Europe (and not so happy if one is Finnish or Dutch) just happy to kick the can for the third time.

The following tweet probably best captures the surreal nature of the “deal”:

Which means that nothing is really fixed, Greece will remain a pass-through vehicle for the Troika to pay into so it can repay itself, while the Greek economy continues to disintegrate, and this whole theater will repeat itself in X months, just with a different set of players.

For, stocks, however kicking the can is the best possible news as it means even more debt will be layered, which will force the ECB to keep rates at zero and/or negative for longer, and nowhere is this seen better than in European equities, currently at 6 week highs, and US futures, both of which are surging this morning with Europe in the green across the board: Eurostoxx 50 +1.2%, FTSE 100 +0.5%, CAC 40 +1.4%, DAX +1.5%, IBEX +1.3%, FTSEMIB +1.2%, SMI +1%.

European equities trade in the green (Euro Stoxx: +1.5%) as exporters outperform amid the weaker EUR. In company specific news, Bloomberg sources suggest Volkswagen’s (+2.4%) Audi abandoned their plans to sell 600,000 cars in China this year, seeing an immediate fall of 2.5% before paring much of this move due to the aforementioned EUR weakness and after data showed European car sales had their biggest jump in five and a half years.

Asian equities rose after the Greek parliament voted to pass the preliminary bailout reforms. Consequently, ASX 200 (+0.6%) extended its relief rally led by gains in financials . Nikkei 225 (+0.7%) was led by exporters benefitting from JPY weakness, coupled with positive sentiment in the region. Chinese stocks initially opened lower as margin debt trading fell for the first time this week, while the PBoC conducted its first net weekly drain since April, however prices recovered in continuation of the recent volatility seen in Chinese stock markets. JGB’s rose following a well-received 5-yr JGB auction which printed a higher than prior b/c.

Fixed income markets trade in modest negative territory amid the strength in equities, while Bunds underperform as France auctioned EUR 8bIn worth of bonds and Spain auctioned EUR 6.4bIn of bonds, with all bid/covers lower than previous.

Today sees a number of high profile earnings including Goldman Sachs, Citigroup and Google.

The EUR, which was kept afloat as a result of carry-trade unwinds and ECB support during the Greek drama, has seen weakness throughout the European morning to see EUR/USD reside at 6 week lows and briefly breaking below 1.0900 while EUR/GBP fell to fresh 8 year lows. This comes in the wake of yesterday’s Greek parliamentary vote, seeing the deal with creditors pass, to now be voted on by other Eurozone parliaments.

Naturally, sentiment this morning has been relatively bullish with regards to Greece despite Bloomberg sources suggesting that the ECB has not given a decision on emergency aid for Greek banks but favour seeing the cap remain on hold, with the sources also suggesting that Greece requested increase in ELA of EUR 1.5bIn. This comes as Bloomberg sources later noted that the Eurozone has provisionally agreed to a EUR 7bIn bridge loan for Greece, with Finland, who are traditionally against the idea of providing Greece more capital set to approve Greek bailout talks.

EUR weakness also comes after recent hawkish comments from both the Fed and BoE, with the ECB rate decision scheduled for later today with President Draghi due to give his press conference shortly after, while Eurozone CPI data today was in line with expectations.

Elsewhere, USD/JPY trades in close proximity to a large option expiry at today’s NY cut at 124.00 (USD 1.3bIn), with USD index heading into the North American crossover at trading near its highs (+0.2%) . Asian hours saw NZD underperform as participants reacted to the latest Fonterra GlobalDairyTrade auction, where prices declined to 6-year lows and New Zealand CPI printed softer than expected (0.4% vs. Exp. 0.5%), which allows further scope for the RBNZ to cut rates.

The metals complex has seen weakness today amid USD strength and concerns mounting regarding the Chinese economy , demonstrated most recently by Audi withdrawing their planned targets of selling 600,000 cars in the country. Platinum is the underperformer after breaking to fresh lows and trading at its lowest level since February 2009, with palladium at its lowest level since 2012. Energy markets saw WTI Aug’15 futures break above the USD 52.00 handle after yesterday saw bearish sentiment and analysts at Bank of America say that there is a possibility that Iran could increase oil production to 700K bpd next year after sanctions have been lifted.

Looking ahead, as well as ECB’s Draghi, today sees a continuation of Fed’s Yellen’s semi-annual testimony to congress and comments from BoE’s Carney as well as US weekly jobs data and Philadelphia Fed business outlook.

In summary: European shares remain higher with the autos and industrial sectors outperforming and oil & gas, utilities underperforming. EU said to agree in principle to EU7b Greece bridge loan after Greek government votes to approve bailout deal. European car sales rise in June in biggest gain in 5 1/2 years. New Zealand dollar falls to 6-year low. Puerto Rico says it failed to send money for bond payments. The Swedish and German markets are the best-performing larger bourses, U.K. the worst. The euro is weaker against the dollar. Greek 10yr bond yields fall; German yields increase. Commodities gain, with silver, gold underperforming and Brent crude outperforming. U.S. jobless claims, continuing claims, Bloomberg consumer comfort, net TIC flows, Bloomberg economic expectations, Philadelphia Fed index, NAHB housing market index due later.

Market Wrap

• S&P 500 futures up 0.3% to 2111.3
• Stoxx 600 up 1.3% to 405.3
• US 10Yr yield up 3bps to 2.39%
• German 10Yr yield up 3bps to 0.86%
• MSCI Asia Pacific up 0.6% to 144.3
• Gold spot down 0.4% to $1145/oz
• Eurostoxx 50 +1.2%, FTSE 100 +0.5%, CAC 40 +1.4%, DAX +1.5%, IBEX +1.3%, FTSEMIB +1.2%, SMI +1%
• Asian stocks rise with the Sensex outperforming and the Hang Seng underperforming; MSCI Asia Pacific up 0.6% to 144.3
• Nikkei 225 up 0.7%, Hang Seng up 0.4%, Kospi up 0.7%, Shanghai Composite up 0.5%, ASX up 0.6%, Sensex up 0.9%
• Euro down 0.53% to $1.0892
• Dollar Index up 0.37% to 97.53
• Italian 10Yr yield up 0bps to 2.01%
• Spanish 10Yr yield down 0bps to 2.01%
• French 10Yr yield up 2bps to 1.16%
• S&P GSCI Index up 0.3% to 409
• Brent Futures up 1% to $57.6/bbl, WTI Futures up 0.7% to $51.8/bbl
• LME 3m Copper up 0.3% to $5550/MT
• LME 3m Nickel up 0.7% to $11555/MT
• Wheat futures down 0.3% to 565.3 USd/bu

Bulletin Headline Summary from Bloomberg and RanSquawk

• EUR has seen weakness throughout the European morning to see EUR/USD reside at 6 week lows and briefly breaking below 1.0900 while EUR/GBP fell to fresh 8 year lows.
• European equities trade in the green as exporters outperform amid the weaker EUR
• Today sees the ECB rate decision, followed by Draghi’s press conference, the second half of Fed’s Yellen’s semi-annual testimony to congress and comments from BoE’s Carney, US weekly jobs data and Philadelphia Fed business outlook
• Treasuries fall after Greek parliament last night passed new austerity measures, as euro-area finance ministers said to agree in principle to extend EU7b bridge loan to Greece.
• Loan will come from EFSM and is due to be announced on Friday once national parliaments have voted on the bailout deal, according to an official who asked not to be named because the conversations were private
• Tsipras will have to rebuild his government after more than a quarter of his own lawmakers rebelled against a bailout that he accepted to keep the country in the euro
• Germany’s Schaeuble told Greece the only way it’ll get a debt reduction is to leave the euro and cast doubt on the country’s ability to even complete negotiations on a third bailout
• ECB likely to keep ELA to Greek lenders on hold at current EU88.6b level on Thursday, people familiar with the discussions said, as political talks over the country’s bailout continue
• ECB announces rate decision today at 7:45am, with Draghi press conference to follow at 8:30am; here are five things to listen for from Mario Draghi
• Puerto Rico said one of its agencies didn’t provide funds needed to cover debt payments as the cash-strapped commonwealth reels from an escalating fiscal crisis
• China’s frenzied stock market boom — which soured in second half of June — helped drive a surge in financial sector growth that underpinned the economy’s better-than-expected GDP
• Sovereign 10Y bond yields mostly higher. Asian, European stocks gain, U.S. equity-index futures gain. Crude oil and copper higher, gold falls

DB’s Jim Reid completes the overnight summary

Yesterday saw one of the more tame semi-annual testimonies (vs expectations) from a Fed chair that I can remember. It was pretty consistent with her comments earlier in the month with the key message being that if the economy performs as they expect they’ll likely raise rates this year but that the future path of hikes will be gradual, especially if they act sooner. The trillion dollar question is whether the data will get them over the line. I personally still think a 2015 hike is unlikely but one has to respect the repeated rhetoric on the desire for a 2015 hike from the Fed themselves. It wouldn’t take much for them to pull the trigger. Whatever they do it’s probably useful for them to keep highlighting the potential for a 2015 lift-off to ensure risk premium stays in the market thus skimming the froth off various areas of the market. So its unlikely that their rhetoric will change much over the summer.

As well as reiterating that all meetings remain live, Yellen also said that policy will remain ‘highly accommodative for quite some time’ and that the she would be willing to hold a press briefing should liftoff occur at a meeting with no scheduled press conference (October and January for example). With regards to references of Greece and China, there was very little on the whole. Yellen acknowledged the concerns around both but did not appear overly concerned in terms of the impact on the US economy. Price action largely reflected the overall tame nature of the testimony. The Dollar did firm with the DXY ending +0.51% while 10y Treasuries initially spiked a modest 2.5bps higher, only then to change tact and march lower into the close with yields eventually finishing 4.9bps lower at 2.353%. In terms of Fed Funds contracts, the Dec15 contract was unchanged at 0.285%, Dec16 3bps lower at 0.965% and Dec17 4.5bps lower at 1.650% with Bloomberg reporting that futures markets are showing a 33% chance the Fed will raise rates in September and a 65% chance by December, up from 31% and down from 66% respectively on Tuesday. So little reaction on the whole. Both the S&P 500 (-0.07%) and Dow (-0.02%) sold off into the close meanwhile as energy stocks in particular dragged the market down after WTI (-3.07%) and Brent (-2.50%) dropped on the latest rising US supply data.

In fact it was a fairly busy day for Fedspeak yesterday. As well as Fed Chair Yellen, we also heard from San Francisco Fed President Williams (voter) who said that the September meeting ‘would be a very plausible time’ to start liftoff. Williams also said that ‘there’s a good chance we’ll overshoot’ the Fed’s 2% inflation goal by the end of 2016 but that wouldn’t be an issue in his mind, however Williams did warn that the ‘strengthening of the dollar’ has greater policy implications. Kansas City Fed President George (non-voter) was consistent with much of the other rhetoric yesterday, saying that the Fed should begin to think about liftoff without narrowing down her timeframe. Finally Cleveland Fed President Mester (non-voter) said that the economy can handle an increase in rates and that the risks from Greece are not big enough to change her outlook.

Onto Greece now, as largely expected late last night we heard that Greek parliament approved the proposals agreed upon by PM Tsipras and the Creditors. The bill was passed by a majority of 229 votes (out of 300 seats), with 64 against, 6 abstaining and 1 failing to show. More importantly however, of the 149 Syriza MP’s, 32 voted against and 6 abstained resulting in 38 Syriza MPs objecting the proposals, at the top end of the expected range (30-40). Finance Minister Tsakalotos responded to the vote saying that it ‘was a decision which will be a burden for me for the rest of my life’ and that ‘I don’t know if we did the right thing but I know we did something to which there was no alternative’. Several high-profile Syriza MP’s were amongst those to go against the conditions including Varoufakis, Energy Minister Lafazanis and Deputy Labour Minister Stratoulis. Attention now turns to what will likely be a political reshuffle given the Syriza dissenters, with a minority government a possibility. According to Reuters, a conference call between Eurozone Finance Ministers is scheduled for this morning, while parliamentary approval processes are now expected to take place across Europe (yesterday France approved the proposals) including the Bundestag on Friday. The reaction function from the ECB with regards to ELA will now also be closely watched at today’s meeting.

Looking at how markets have reacted in Asia this morning, it’s been a relatively constructive start across the board for Asian bourses led by China which has rebounded off a weak start and yesterday’s decline with the Shanghai Comp (+0.99%), Shenzhen (+1.93%) and CSI 300 (+1.34%) all moving higher. The Hang Seng (+0.03%) is a touch higher while the Nikkei (+0.55%), Kospi (+0.57%) and ASX (+0.44%) are all higher in trading this morning. S&P 500 futures are around +0.3% while 10y Treasuries are +2bps at 2.372%. The Euro is around -0.1% with minimal reaction to the vote. Asia credit is around a basis point tighter while oil has bounced back with both WTI and Brent up 1% this morning.

Back to markets yesterday, European equity markets closed modestly firmer reversing a slightly softer start ahead of the Greek parliament vote. The Stoxx 600 (+0.43%), DAX (+0.20%), CAC (+0.29%), IBEX (+0.69%) and FTSE MIB (+1.28%) all finished up, while 10y Bund yields declined steadily over the course of the day, eventually closing 6.1bps lower at 0.826%. In the periphery Italy (-6.3bps), Spain (-7.5bps) and Portugal (-5.4bps) all moved lower. On the data front, French CPI was softer than expected for June (-0.1% vs. 0.0% expected) although the annualized rate remained unchanged at +0.3 yoy. Closer to home in the UK and following fairly hawkish BoE rhetoric this week, we got some slightly softer May employment numbers yesterday with the unemployment rate ticking up one-tenth to 5.6% and average weekly earnings rising less than expected to +3.2% yoy (vs. +3.3% expected), although the trend in the latter still remains supportive. In a choppy session 10y Gilt yields ended 0.7bps lower at 2.115% while Sterling was fairly unmoved (+0.02%).
Data flow in the US yesterday was largely better than expected. June PPI was a beat at both the headline (+0.4% mom vs. +0.2% expected) and core (+0.3% vs. +0.1% expected) although annual figures continue to remain low (-0.7% yoy and +0.8% yoy respectively). Industrial production was firmer than expected for June (+0.3% mom vs. +0.2% expected) and the highest monthly increase this year. Manufacturing production was disappointing (0.0% mom vs. +0.1% expected) although the July NY Fed manufacturing index was more encouraging (3.86 vs. 3.00 expected), rebounding off a weaker June reading. Finally capacity utilization saw a modest increase to 78.4% (vs. 78.1%) from 78.2% in May.

Staying across the pond, the Bank of Canada yesterday cut rates for the second time this year after cutting by 25bps to 0.5% (market expectations was largely split 50/50 for a cut vs. hold). The move was supported by a relatively decent downgrade to growth from the BoC, cutting its 2015 GDP forecast to 1.1% from 1.9% and 2016 to 2.3% from 2.5% while also suggesting that Q2 growth likely contracted. The Canadian Dollar yesterday ended nearly 1.5% lower versus the USD on the back of the move.

Onto today’s calendar now. As well as further headlines concerning Greece and the political developments, the ECB meeting, Euro area CPI (final June reading) and trade data will be the highlights this morning. Over in the US this afternoon, Fed Chair Yellen is due to speak once again at the Semi-Annual Testimony, this time in front of the Senate while data wise this afternoon in the US we’ve got initial jobless claims, Philadelphia Fed business outlook and NAHB housing market index all due. Citigroup, Goldman Sachs, Google, eBay and Schlumberger are the corporate earnings highlights.

July 5: Greek Independence Day; July 15: Greek In Dependence Day

Back in February, when the ill-fated Greek attempt to renegotiate its existing bailout (instead culminating with a new, €86 billion bailout program 5 months later) was launched, Eurogroup chief Jeroen Dijsselbloem rejected a request for a short-term financing agreement to keep the country afloat while it renegotiates the terms of its bailout program. “We don’t do bridge loans”, Dijsselbloem told reporters in The Hague, when asked about Greece’s request. Turns out “we do“ after all.

After last night’s full capitulation vote by Greece which will push its debt beyond 200% just so the insolvent nation can repay its creditors, the next step would be of course finding a funding solution until the terms of the full ESM bailout are ironed out. Which means, coming up with a bridge loan just so Greece has the funds to repay its default to the IMF now amounting about €2 billion as well as the ECB’s €3.5 billion payment on Monday.

Sure enough, moments ago Bloomberg reported that Euro-area finance ministers agreed in principle to extend a €7 billion($7.6 billion) bridge loan to Greece, citing an official familiar with the decision. The loan is due to be announced tomorrow once technical details are sorted and national parliaments vote on the bailout deal, the official said, and since this loan has to be funded ahead of the ECB’s maturity, this is one deadline the Eurogroup will keep.

Furthermore, with the sanctity of the ECB’s balance sheet in question it meant that even one of the staunchest opponents to a 3rd Greek bailout, Finland, would have to promptly fall in line, and so it did:

• FINNISH PARLIAMENT GRAND COMMITTEE APPROVES GREEK BAILOUT TALKS

Meanwhile, if Greece had hoped that just by voting through yet another “deal” which it has no credible way of adhering to it would immediately get an ELA increase from the ECB, it was sorely mistaken.

As Bloomberg also reports, the ECB met earlier today to review the Greek ELA and while it hasn’t yet announced a decision, the current opinion in the ECB’s Governing Council favors keeping the cap on Emergency Liquidity Assistance for Greece on hold at the current 88.6 billion euros, people familiar with the matter say.

As a result, the ECB’s Executive Board recommended the limit stay in place, one person says even though the Greek central bank asked for an increase of 1.5 billion euros, two people say.

In other words, the Greek capital controls will remain for far longer even after Greek funding as a pass-through vehicle, whereby the Troika pays Greece so it can repay the Troika (although with the IMF on its way out, it will soon be the Dvoika).

And without any substantial money circulating through the Greek economy, it means that Greek GDP will likely have a double digit decline pushing the country even deeper into depression while its banks, unable to collect on loan payments, will see their NPLs rise at a rate of 1% per day until not only is there no Greek economy, but no Greek banking system either.

But at least Greece still has the euro.